The World Bank has approved a $100-million loan to improve the business climate in the country’s most populous province, after Pakistan developed a new, time-bound national strategy to remove obstacles in conducting operations.
The World Bank Group Board of Directors approved the first ‘International Bank for Reconstruction and Development’ (IBRD) loan of $100 million for Punjab. The IBRD facility had remained suspended for years due to the country’s low level of foreign currency reserves.
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One of the conditions in qualifying for IBRD loans is that the country must have enough foreign exchange reserves to meet its three-month import bill.
The IBRD is relatively expensive financing and is usually linked with changes in the recipient country’s economic and financial policies. However, there is a school of thought, led by Dr Kaiser Bengali, which opposes such lending programmes as it is termed as an easy source of budget financing.
The $100 million loan would help improve the investment climate in Punjab and create more and better jobs, thus contributing to reducing unemployment and poverty in Pakistan, according to a handout issued by the World Bank’s local office.
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The country will return the loan in 18.5 years.
Pakistan’s business climate has been significantly deteriorating due to haphazard changes in policies, lack of facilitation by government departments and lack of infrastructure support.
Pakistan’s ranking in the World Bank’s Ease of Doing Business Index has slipped from 136 in 2015 to 138 in 2016. Important obstacles include barriers to creating new businesses, lengthy procedures for paying taxes, weaknesses in contract enforcement, limited access to credit, and the high costs of cross-border trade.
In its recent report on Pakistan’s economy, the International Monetary Fund (IMF) has also urged Pakistan to improve the business climate to foster private investment and support higher and more inclusive growth in Pakistan.
The new strategy
The report reveals that in February, Pakistan finalised a new countrywide reform strategy, supported by the World Bank, to strengthen the business climate.
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This new strategy defines specific time-bound measures to improve the business climate, including at the provincial level. As key aspects, it will focus on further easing procedures to start a new business and paying taxes, facilitating access to credit, and improving regulatory framework.
The strategy focuses on nine areas - starting businesses, construction permits, paying taxes, enforcing contracts, property registration, getting credit, trading across borders, getting electricity and resolving insolvencies.
The World Bank said that the Punjab government’s ‘Jobs and Competitiveness’ programme would undertake reforms to reduce the cost and risks of doing business, improve laws affecting labour, in particular to encourage women’s employment.
Women’s labour force participation will be increased by reforming discriminatory policies, for example the Factory Act, which restricts women’s employment in manufacturing. Additional support services in industrial estates, such as day-care and transport facilities for working women, are also planned, it added.
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The $100 million loan is linked with promoting private sector-led development by making it easier to register a new business, getting construction permits, property registration and contract enforcement.
“There are one million new entrants to the labour force every year in Punjab. It is extremely important to increase domestic and foreign investment to ensure there are more and better jobs especially for youth and women,” said World Bank Pakistan Country Director Illango Patchamuthu. He said the programme would help build capacity and systems for supporting infrastructure such as industrial estates and central effluent treatment plants through public-private partnerships. It will also support industrial clusters with high growth potential.
One measure for gauging the programme’s effectiveness will be the increase in foreign investments the Punjab Board of Investment will attract.
Published in The Express Tribune, April 2nd, 2016.
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